Feedback on Capital Signal Difficult times ahead for Vincenzo Zucchi (BIT: ZUC)
To find multi-bagger stock, what are the underlying trends we need to look for in a business? First, we would like to identify a growth to recover on capital employed (ROCE) and at the same time, a based capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. However, after investigation Vincenzo Courgettes (BIT: ZUC), we don’t think the current trends fit the mold of a multi-bagger.
Return on capital employed (ROCE): what is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on Vincenzo Zucchi is:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.06 = â¬ 5.3m Ã· (â¬ 126m – â¬ 37m) (Based on the last twelve months up to December 2020).
Thereby, Vincenzo Zucchi has a ROCE of 6.0%. Even though it is in line with the industry average of 6.1%, it is still a poor performance in itself.
Check out our latest analysis for Vincenzo Zucchi
Historical performance is a great place to start when researching a stock, so above you can see Vincenzo Zucchi’s ROCE gauge against his past returns. If you would like to see Vincenzo Zucchi’s performances in the past in other measures, you can check out this free graph of past income, income and cash flow.
What the ROCE trend can tell us
On the surface, the ROCE trend at Vincenzo Zucchi does not inspire confidence. About a year ago, returns on capital were 38%, but since then they have fallen to 6.0%. On the flip side, the company has employed more capital with no corresponding improvement in sales over the past year, which might suggest that these investments are longer-term games. It may take some time for the business to begin to see a change in the benefits of these investments.
In addition, Vincenzo Zucchi has done well to reduce its current liabilities to 30% of total assets. As the ratio was 90%, this is a significant drop and this probably explains the drop in ROCE. In addition, it can reduce some aspects of the risk to the business, as the company’s suppliers or short-term creditors are now less funding its operations. Since the company essentially finances a larger portion of its operations with its own money, you could argue that this has made the company less efficient at generating ROCE.
What we can learn from Vincenzo Zucchi’s ROCE
In summary, while we are somewhat encouraged by Vincenzo Zucchi’s reinvestment in his own business, we are aware that returns are diminishing. Although the market should expect these trends to improve as the stock has gained 49% over the past five years. However, unless these underlying trends turn more positive, our hopes would not be too high.
Vincenzo Zucchi does carry some risks, however, we have found 4 warning signs in our investment analysis, and 1 of them makes us a little uncomfortable …
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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